Vietnam allows foreign capital on commodity exchange

16:15 | 07/06/2018 Finance - Banking

(VEN) - A newly issued government decision will allow foreign investors to contribute capital to commodity exchanges in Vietnam, as long as their ownership does not exceed 49 percent of the chartered capital.

vietnam allows foreign capital on commodity exchange
The Vietnam Commodity Exchange is operating effectively

Under Decree No. 51/2018/ND-CP, which goes into effect on June 1, foreign investors are also permitted to trade on the commodity exchange as clients and can become members of the exchange (brokers or traders) without ownership restraints.

The decree stipulates that the commodity exchange must have a chartered capital of at least VND150 billion and an information technology system that meets technical requirements in processing purchase and selling orders, as well as a software solution with a capacity of tracing transactions, payment and delivery for at least five years.

The Ministry of Industry and Trade will be responsible for verifying and granting the establishment license. Commodity exchanges are considered an effective form of business in helping prevent price drops for agricultural products resulting from bumper crops.

Similar to stock exchanges, commodity exchanges enable participants to buy and sell certain volumes of goods at prices negotiated at the contract time with future delivery. There are about 70 commodity exchanges worldwide, including major agricultural trading centers, such as the Chicago Board of Trade and London Commodity Exchange. Each year, huge volumes of goods are traded via these exchanges, providing reference prices for transactions of agricultural products worldwide.

Nguyen Viet Vinh, Secretary General of the Vietnam Coffee and Cocoa Association, said the connection with commodity exchanges worldwide helps ensure the transparency of information about sale volumes and prices, thus enabling farmers to take the initiative in production to prevent oversupplies and price drops during bumper crop seasons.

Regarding concerns about the quality of goods and delivery, Nguyen Loc An, Deputy Director of the MoIT’s Domestic Market Department, affirmed that commodity exchanges enable direct transactions between buyers and sellers, helping minimize farmer and producer dependence on merchandisers, preventing price pressures and drops. Moreover, clear information about goods and reference prices will be provided, helping sellers offer suitable prices.

The MoIT will intensify training and the spread of information about commodity exchanges among state management authorities, as well as investors, associations and businesses, in order to promote sales via this channel.

The new decree amends and supplements a number of articles of Government Decree 158/2006/ND-CP dated December 28, 2006 on the conditions for the establishment of commodity exchanges.

Lan Phuong